Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 87

The Bottom Line on Riskfree Rates

! Using a long term government rate (even on a coupon bond) as the riskfree

rate on all of the cash flows in a long term analysis will yield a close

approximation of the true value.

! For short term analysis, it is entirely appropriate to use a short term

government security rate as the riskfree rate.

! The riskfree rate that you use in an analysis should be in the same currency

that your cashflows are estimated in. In other words, if your cashflows are in

U.S. dollars, your riskfree rate has to be in U.S. dollars as well.

• Data Source: You can get riskfree rates for the US in a number of sites. Try
  http://www.bloomberg.com/markets.

Since corporate finance generally looks at long term decisions, we will for the

most part use the long term government bond rate.